Chicago PMI new orders improved to 59 vs. 58 and employment registered at 46.6 compared to 45.6 a month earlier, the group said. But factory job growth remains very weak, with this component registering sub-50 readings since March 2000.

The prices paid component was 62.4 vs. 63.1 and production improved modestly to 54.9 from 54.2.

"While certainly not encouraging for the unemployed workers, the employment series has slowly trended back toward expansion since the beginning of 2002," said Gina Martin, economist with Wachovia Securities. "Until strength in orders promotes some-thing of a build up in the backlog series, companies will continue to tread lightly in spending on new capital equipment and employees."

The report is often viewed an early snapshot on the market-sensitive national Institute for Supply Management [ISM] factory-sector reading, due for release Monday.

"It is particularly encouraging that the orders component actually increased while the production index eased only marginally," said Jade Zelnick, chief economist with RBS Greenwich Capital Markets

However, "since this is a mail survey, there are still questions about the extent to which the February PMI responses reflect the jump in factory output in January rather than continued vigor in February," she added.

"At this time, [Greenwich Capital] still looks for the rise in manufacturing production to have slowed very sharply this month following its auto-related 0.5 percent surge in January. In any case, the Chicago results are consistent with [our] view that the ISM manufacturing index will remain well above 50 this month."

Zelnick's ISM forecast is for a 52.3 February reading from 53.9 in January.

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